Out-Law / Your Daily Need-To-Know

First UK electricity capacity market auction to guarantee 50GW of spare power, says government

23 Dec 2014, 10:22 am

The first UK electricity capacity market auction will guarantee just under 50GW of backup generating capacity in 2018/19, at a cost of £990 million in 2014 prices, the Department for Energy and Climate Change (DECC) has announced.

Of the 49.3GW procured during the auction, 68% will be provided by existing facilities and 25% by refurbished facilities, according to the preliminary results. The remaining capacity will be provided through newly-constructed capacity and a small amount of guaranteed demand reduction. Providers will receive an average clearing price of £19.40 per kilowatt provided.

The results of the auction must now be verified by an independent auction monitor before being finalised, which is expected to happen at the beginning of January.

UK energy secretary Ed Davey said that the outcome of the auction was "fantastic news for bill-payers and businesses", as fierce competition between participants in the auction had driven the guaranteed payments down to below expected levels. The average household will pay an additional £11 in annual bills from 2018/19 to cover the payments to generators.

"We are guaranteeing security at the lowest cost for consumers," Davey said. "We've done this by ensuring that we get the best out of our existing power stations and unlocking new investment in flexible plant."

Introduced under the 2013 Energy Act, regular capacity market auctions will be used by the UK government to boost energy security in the medium term until its electricity market reform (EMR) infrastructure investment strategy begins to take effect. Through the scheme, various energy sources and generators will receive regular payments to ensure that they are able to provide backup power or demand reduction when the need arises.

Those successful in the auctions will be required to provide capacity when the system needs it or face financial penalties. Agreements range in length from 15 years for new capacity, to rolling one-year or three-year agreements for existing capacity depending on the amount of refurbishment needed. A new independent gas plant is to be constructed at Trafford following success in the auction process.